AZERBAIJAN - July 13 - Oil Fund.

Baku has begun organising the management of billions of dollars of expected oil wealth after signing an agreement with the IMF on the creation of an extra-budgetary oil fund, in which petroleum profits will be collected and then spent gradually. To date, $368m have been deposited in the fund. By 2006 the country could earn more than $1 bn a year from oil. IMF officials approved a $100m, three-year poverty reduction and growth facility loan for Azerbaijan, $10m for immediate use. Two key conditions for the loan were that the government agree a long-term programme to reduce wealth discrepancies in the country and establish rules to manage oil fund's assets. Azerbaijan was denied a final $22m tranche of separate IMF funding last year after it failed to carry out a number of requests. (Earlier this year discussions between Azeri officials and the IMF seemed to have reached an impasse, with disagreement primarily over how to structure the oil fund). The fund will be consolidated with the national budget and expenditures will be made through the state treasury. IMF and Azeri authorities hope that by keeping billions of dollars from entering the economy immediately, they can avoid the destabilising effect of a rapid rise of oil income. The oil fund is also being closely watched in Kazakhstan, where a similar institution is being set up. The fund's directors, headed by Samir Sharifov, published a set of asset management rules last month, setting out in which institutions the fund can invest. The country should also hold tenders soon to select funs asset managers. The fund will issue quarterly and yearly reports and undergo audits by international accounting firms. (But the question remains on what projects the money will ultimately be spent, and how it will be monitored. Azerbaijan was recently put among the world's 10 most corrupt countries by Transparency International, the risk management group, raising concerns that some allocated money could disappear. Experts also worry about the tight control that Pres. Haider Aliyev exercises over the fund).